The Board of Directors decided in December 2009 to establish a new share-based incentive plan for the Group's key personnel. The aim of the plan is to align the objectives of the owners and key personnel of Neste Oil: e.g. increasing the value of the Company and committing key personnel to the Company by offering them a competitive reward plan based on holding Company shares. The plan includes three three-year earning periods, first one of which started in 2010, second in 2011 and the last one in 2012.

The Board of Directors decides the earnings criteria and targets to be met as well as the maximum level of the payable reward for each earning period. The earning criteria for the plans are the same, the sales volume at Renewable Fuels and total shareholder return on Neste Oil share in relation to the Dow Jones Nordic Return Index. The potential reward will be paid partly in Company shares and partly in cash in 2013, 2014 and 2015. The maximum level of payable reward may not, during any earning year, exceed the annual gross salary of the year in question. The portion to be paid in cash will cover taxes and tax-related costs arising from the reward. The plan prohibits the transfer of shares within three years from the end of the earning period, i.e. the length of the plan is six years for each share allocation. Even after this, key personnel must hold 50% of the shares received on the basis of the plan as long as the value of the shares held in total corresponds to their annual gross salary. This obligation to own shares is valid as long as the employment or service in the Group continues.

The maximum amount of reward for key personnel for Plan 2012–2014 equals the value of 1,098,000 Neste Oil shares, of which 990,000 shares were allocated as at 31 December 2013. The maximum reward for the members of the Neste Executive Board equaled the value of 390,000 shares, of which the maximum reward for the President & CEO equaled the value of 100,000 shares.

The maximum amount of reward for key personnel for Plan 2011–2013 equals the value of 842,000 Neste Oil shares, of which 712,000 shares were allocated as at 31 December 2013. The maximum reward for the members of the Neste Executive Board equaled the value of 305,000 shares, of which the maximum reward for the President & CEO equaled the value of 80,000 shares.

Earnings period of share-based incentive plan 2010–2012 ended 31 December 2012. Part of the earning criteria were met resulting in the delivery of shares to the participants in March 2013. A gross reward of 128,340 shares equaling to EUR 1.4 million was delivered to the participants. The net amount of shares delivered totaled 63,526 shares and the rest of the reward was paid in cash to cover taxes and any tax related costs. The fair value of the share as at delivery date was 10.9977 euros. The members of Neste Executive Board received a gross reward equaling to 67,580 shares.

Share-based incentive plan as of 1 January 2013

Neste Oil’s Board of Directors decided on 13 December 2012 to establish a new long-term share-based incentive plan for the Group’s senior management and nominated key personnel. The aim of the plan is to align the objectives of the company’s owners and key personnel to increase the company’s value and to commit key personnel to the company through an incentive system based on ownership of Neste Oil shares. The Board is responsible for annually selecting the members of Neste Oil’s senior management entitled to participate in this long-term incentive plan.

The plan includes three individual share plans, each with a three-year earning period. The first share plans started in 2013 and it will be followed by plans starting in 2014 and 2015. The Board of Directors will decide on the earning criteria and targets to be applied, as well as the maximum level of incentive payable for each earning period, either annually or for the entire earning period. The earning criteria for the first earning period 2013–2015 are the Group’s comparable free cash flow and the comparable operating profit of Renewable Fuels. The earning criteria for the earning period 2014–2016 are the Group's comparable free cash flow and the relative total shareholder return of ten Neste Oil peer group oil companies. Any possible payments will be made partly in Company shares in 2016, 2017, and 2018, and partly in cash. Participants shall not be entitled to sell or transfer the shares they receive as incentives during a restriction period following the end of the earning period. The length of this period will be three years in respect of the President and CEO and the other members of the Neste Executive Board, and one year in respect of other participants.

The following tables summarize the terms and the assumptions used in accounting for the performance share plan.

Grant dates and prices

Plan 2013–2015

Plan 2012–2014

Plan 2011–2013

Plan 2010–2012

Grant dates

10 Feb 2013

2 Jan 2012

3 Jan 2011

4 Jan 2010

Grant prices, euros

-

6.70

10.81

11.50

Share price as at grant date, euros

-

8.10

12.21

12.70

Term of the plan

Plan 2013–2015

Plan 2012–2014

Plan 2011–2013

Plan 2010–2012

Beginning of earnings period

1 Jan 2013

1 Jan 2012

1 Jan 2011

1 Jan 2010

End of earnings period

31 Dec 2015

31 Dec 2014

31 Dec 2013

31 Dec 2012

End of restriction period

31 Mar 2017/ 31 Mar 2019

1 Jan 2018

1 Jan 2017

1 Jan 2016

Assumptions used in calculating the value of the reward

Plan 2013–2015

Plan 2012–2014

Plan 2011–2013

Plan 2010–2012

Amount of granted shares at the beginning of the period, maximum reward

-

1,018,000

740,000

630,000

Amount of shares granted during the period, maximum reward

-

10,000

-

-

Forfeited during the period

-

-38,000

-28,000

-15,000

Expired during the period

-

-

-

-486,660

Amount of granted shares at the end of the period, maximum reward

-

990,000

712,000

128,340

Number of participants at the end of the financial period

93

65

50

34

Share price at the end of the financial period, euros

14.37

14.37

14.37

14.37

Estimated rate of realization of the earnings criteria, %

75%

100%

64%

20%

Estimated termination rate before the end of the restriction period, %

10%

10%

0%

0%

The grant price, i.e. fair value at grant date, has been determined as follows: grant price equals the share price as at grant date deducted by expected dividends payable during the three year earning period.

Accounting treatment

The Share-based incentive plans described earlier in this note are accounted for as a share based transaction with cash alternative. The portion of the earned reward (approximately 50%) for which the participants will receive shares of Neste Oil is accounted for as an equity settled transaction, and the portion of the earned reward to be settled in cash to cover tax and other charges payable by the participants (approximately 50%), is accounted for as a cash settled transaction. The earned reward is entered into the income statement spread over the earnings period and restriction period. In respect of the equity settled portion, the amounts recognized in the income statement are accumulated in equity; and in respect of the cash settled portion, a respective liability is entered into the balance sheet. The liability is measured at fair value at each reporting date, and the respective change in the fair value is reflected in operating profit in the income statement.

The expense included in the income statement is specified in the following table.

MEUR

2013

2012

Expense arising from equity-settled share-based payment transactions

2

0

Expense arising from cash-settled share-based payment transactions

6

1

Total expense arising from share-based payment transactions

8

1

The liability recognized in the balance sheet related to share based payments amounted to EUR 8 million (2012: EUR 2 million). The expense to be recognized during the financial periods 2014–2019 is estimated as 31 December 2013 to amount to EUR 21 million. The actual amount may differ from this estimate.

Hedging

The Group hedges its exposure to the share price development during the time period between the grant date and the delivery date. The hedging arrangement is accounted for as treasury shares and has been described in detail in Note 26.